NEA does not insure its projects


    ” Assets worth Rs 120 b under risk “

    KATHMANDU, July 1

    nea_goingThe government-owned Nepal Electricity Authority (NEA) has not insured 17 hydropower projects worth over Rs 100 billion citing lack of budget and it will have to bear all the losses incurred in case of natural calamities. All the private projects, however, have insurance coverage.

    It has not insured even its fleet of 800 vehicles. It argues that insurance is not necessary as such situation has not arisen till now. “We have not been able to insure due to lack of budget,” Executive Director of NEA Rameshwore Yadav stated. “The projects have not suffered major losses due to natural disasters till now. NEA has been addressing minor losses itself. So, insurance is not necessary,” he added. He argued that insuring the projects at the cost of over a billion of rupees every year is not in the priority list of NEA when it is facing difficulty to even remunerate its staffers. “The institution does not have money. The government also does not provide any. How can we do insurance?” he asked. “We could have managed if it were only one project. The insurance premium for 17 projects will cost over a billion. How can we manage the budget?”

    NEA has constructed 17 projects from 500 KW to 144 MW and is operating two thermal plants. It has net assets worth around Rs 120 billion including hydropower projects, transmission lines, sub-stations, buildings, and land. It has constructed 17 projects including Kaligandaki A (144 MW), Mid Marsyangdi (70 MW), Marsyangdi (69 MW), Kulekhani I & II (92 MW). It also operates a multi-fuel plant in Biratnagar (39 MW) and a diesel plant in Hetauda (14 MW).  Deputy Executive Director of the Finance Department of NEA Lab Bahadur Ghimire also stated that the projects and 800 vehicles could not be insured due to poor financial state. He claimed that insuring a vehicle will cost Rs 50,000 a year and insuring all the 800 vehicles, therefore, will cost around Rs 40 million. Stating that Rs 200 million is spent on repair and maintenance every year he argued, “It is prudent to spend the rest Rs 800 million in construction of new projects instead of annual insurance premium.”

    Geologists state that Nepal is under risk of natural disasters due to its weak geophysical structure. Private projects are insured due to the risk of landslides, floods, glacial lake outburst, earthquake and fire. The insurance companies also charge higher premiums for the projects citing these risk factors. Geologist Gyanendra Lal Shrestha said the mountains and hilly region of Nepal were not formed much long ago and are, therefore, structurally weak. “There is a greater risk of earthquake and landslides due to that. The risk of natural disasters can be minimized if projects are constructed only after properly analyzing the geology and climate of the region,” he added.

    Himal Power Limited has insured Khimti (60 MW), Bhotekoshi Hydropower Company Bhotekoshi (45 MW), Chilime Hydropower Company Chilime (22 MW), and Butwal Power Company Jhimruk (12.5 MW) and Andhikhola (5 MW). The private promoters stated that the projects have been insured due to the high risk of natural disasters and human (terrorism) threats. Mega projects of China and India are also insured. There is international practice of hedging for the risk of fluctuation in exchange rate of the US dollar while signing the Power Purchase Agreement (PPA).

    Bhotekoshi and Butwal Power have insured through the Himalayan General Insurance Company and Chilime through the Rastriya Beema Sanstha (RBS). General Manager of Bhotekoshi Narendra Prajapati said the company has been insuring against both natural and human risks but refused to reveal the amount of insurance premium. Managing Director of Chilime Kulman Ghishing said the company has been paying an annual premium of Rs 5 million. Manager of Butwal Power Bishnu Shrestha also confirmed that it has been insuring its two projects through competition among the insurance companies. Director of Himal Khadga Bahadur Bista also said that Khimti has been insured. “But I don’t know the amount of insurance premium and the company,” he added.

    The insurers revealed that most of the premium amount goes abroad in reinsurance as Nepali insurance companies cannot bear big losses. Manager of Himalayan General Insurance Dhruba Neupane stated that 99.9 percent of the premium goes abroad in reinsurance while just 0.1 percent remains with the Nepali companies. He argued that insurance of hydropower projects is necessary due to the high risks involved and stated that NEA may have ignored it due to lack of mandatory provision for insurance. “It may be thinking there is no need for additional investment as it owns all its projects. It will be better for NEA to insure the projects due to the risk factors,” he opined.

    “Though it is not doing insurance to save millions of rupees now, who will bear the risk in case of big loss in the future?” questioned Manager of the Emergency Insurance Fund Ramesh Lamsal. The cost of Kaligandaki A is around Rs 40 billion, Mid Marsyangdi around Rs 29 billion, Marsyangdi around Rs 19 billion, Kulekhani I around Rs 9 billion and Kulekhani II around Rs 10 billion.

    Chief Executive Officer (CEO) of Sanima Bank Kumar Lamsal also said that infrastructure projects like hydropower projects have to be insured due to the high natural risks involved. “Not insuring the projects means facing a risk of suffering huge loss at any time in the future,” he stated. “Harka Man Singh Thaguna suffered a loss of Rs 80 million due to the recent flood in Darchula. Who will bear that loss? There would have been provision for compensation had he insured,” he added. He argued that insuring projects must be made mandatory at the time of signing PPA. “We must bring mandatory insurance provision as there is possibility of public damage due to destruction of projects.”

    Source : Karobar